Entering the 2010s, the automotive finance industry was in bad shape.
Two years after the collapse of Lehman Brothers and the bankruptcy of two of Detroit's three automakers, the economy and U.S. auto industry were still struggling to get back on their feet.
U.S. new-vehicle sales were slowly recovering from a decades low of 10.4 million in 2009. One year into the decade, the Consumer Financial Protection Bureau was formed, thrusting auto lenders into a new era of regulatory enforcement. While many market factors have shifted — record-high new-vehicle prices — some such as vehicle affordability and regulatory oversight remain just as relevant.
Some trends that characterized the auto lending marketplace entering the decade will carry over to the next.
Lending regulation top of mind: Ten years ago, following the burst of the real estate bubble, the Great Recession and passage of the Dodd-Frank Act, layers of red tape were added to the average car deal. Cheryl Miller, senior vice president of Dealertrack F&I and Registration and Title Solutions, noted that regulation of banks and other lenders has loosened in some ways but tightened in others. The CFPB has more or less been defanged under new leadership, and many lending policies have been overhauled and reformed since the Great Recession. Meanwhile, policies on data security and consumer privacy protections are on the rise.
Proactive credit management: Since 2010, credit management and education have grown substantially. Today, consumers are increasingly researching online to find the lending products that fit them best. More customers shop around to compare interest rates, check credit scores and even obtain preapprovals for car loans before heading to dealerships.
Interest rate swing: Access to credit contracted severely during the Great Recession, and the Federal Reserve lowered interest rates to a range of 0.0 percent to 0.25 percent to improve consumer access. Entering the 2010s, rates remained at these low levels. As the economy improved in the second half of the decade, rates rose to their highest level of the 2010s in December 2018, to a range of 2.25 percent to 2.50 percent. Exiting 2019, after the Fed cut rates three times, the range rests from 1.50 percent to 1.75 percent.
Affordability concerns: Despite contrasting economic factors — relatively low interest rates, strong job growth and solid wage gains — affordability remains a concern in 2020. Today's low unemployment rate, following the longest economic expansion in history, and recent tax reforms that have put more money in wallets are offset by record-high transaction prices and modestly higher interest rates. Many economists and analysts predict another, milder recession in the next year. Zo Rahim, manager of industry research at Cox Automotive, says new technology and safety gear have pushed new-vehicle transaction prices higher, forcing some buyers into the used-vehicle market.
Longer loan terms: The average length for a new car loan in 2010 was 62 months, according to Bankrate. In the third quarter of 2019, according to credit bureau Experian, the average loan term was 69.28 months. Loan terms between 61 months and 72 months made up 41 percent of new car loans, and loans between 73 and 84 months made up 30.9 percent of new car loans in the quarter.